Basel norms India Side of things involved

Q: What are Basel
norms?

Basel is a set of standards and practices developed for global banks to
ensure that they maintain adequate capital to withstand periods of
economic strain. It is a comprehensive set of reform measures designed
to improve the regulation, disclosures and risk management within the
banking sector.

Q: What did Basel I and Basel II focus on?

Basel I norms was introduced in 1998, focused almost entirely on credit
risk. It defined capital requirement and structure of risk weights for
banks.

Basel II was introduced in 2004, laid down guidelines for capital
adequacy, risk management and disclosure requirements.

Q: Why Basel III?

It is widely felt that the shortcoming in Basel II norms is what led to
the global financial crisis of 2008. That is because Basel II did not
have any explicit regulation on the debt that banks could take on their
books, and focused more on individual financial institutions, while
ignoring systemic risk. To ensure that banks don’t take on excessive
debt, and that they don’t rely too much on short term funds, Basel III
norms were proposed in 2010.

Q: What does Basel III norm stipulate?

Basel III establishes tougher capital standards through more restrictive
 capital definitions, higher risk-weighted assets (RWA), additional
capital buffers and higher requirements for minimum capital ratios. It
also introduces new strict liquidity requirements.

Q: What is the biggest criticism against Basel III?

That the stringent capital requirements come at a time when the global
economy is in the midst of a slowdown. This will leave banks with less
money to lend, in turn pushing up the cost of borrowing; and thereby
further aggravating the slowdown.

Q: Why are many banks opposed to Basel III norms?

Basel III norms will require banks to undertake significant process and
system changes to make upgrades, particularly in the areas of stress
testing, liquidity and capital management infrastructure. The reforms
could fundamentally impact profitability and require sweeping changes in
 the business models of many banks

Q: What is the deadline for banks to become Basel III compliant?

For international banks the deadline is December 31, 2018 and March 31,
2018 for Indian banks.

Q: Why the earlier deadline for Indian banks?

The RBI said that: We did this to align our date with the close of the
Indian fiscal year, which is March 31. We could have gone up to March
31, 2019, but that would have overshot the Basel III prescription by
three months and would have attracted adverse notice.

Q: Why are Indian banks concerned about Basel III norms?

Just like for international banks, Basel III norms will affect the
profitability and return ratios of Indian banks as well. Something which
 is admitted by the RBI.

Basel III requires higher and better quality capital. Admittedly, the
cost of equity capital is high. The average Return on Equity (RoE) of
the Indian banking system for the last three years has been
approximately 15%. Implementation of Basel III is expected to result in a
 decline in Indian banks' RoE in the short-term.

Q: How much extra capital will Indian banks need for Basel III?

According to RBI’s estimates, Indian banks will require a capital of Rs 5
 lakh crore over the next five years, of which Rs 1.75 lakh crore will
have to be equity capital. Within the Rs 1.75 lakh crore, anywhere
between Rs 70,000-1,00,000 crore will have to raised through the market,
 depending on to what extent the government will infuse capital in
state-owned banks.

Q: Indian banks are much better off than global banks that caused the
financial crisis. Why then should Indian banks then comply with Basel
III norms?

The RBI said: India should transit to Basel III because of several
reasons. By far the most important reason is that as India integrates
with the rest of the world, as increasingly Indian banks go abroad and
foreign banks come on to our shores, we cannot afford to have a
regulatory deviation from global standards. Any deviation will hurt us
both by way of perception and also in actual practice. Also, it is
important that Indian banks have the cushion afforded by improved risk
management systems to withstand shocks from external systems, especially
 as they deepen their links with the global financial system going
forward.</div>
</div>

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Full text of media release after ICC Board meeting on January 28

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First day of ICC Board meeting concludes with unanimous support for key principles.

The first day of the International Cricket Council's Board meetings concluded in Dubai today with unanimous support for a set of principles relating to the future structure, governance and financial models of the ICC.

The ICC Board unanimously supported the following principles:

• There will be an opportunity for all Members to play all formats of cricket on merit, with participation based on meritocracy; no immunity to any country, and no change to membership status.
• A Test Cricket Fund paid equally on an annual basis to all Full Members (except the Board of Control for Cricket in India, Cricket Australia and the England and Wales Cricket Board) will be introduced to encourage and support Test match cricket.
• A larger percentage from the increasing Associate Members' surplus will be distributed to the higher performing non-Full Members.
• Mutually agreed bi-lateral FTP Agreements which will be legally binding and bankable and will run for the same period as the ICC commercial rights cycle (2015-2023).
• Recognition of the need for strong leadership of the ICC, involving leading Members, which will involve BCCI taking a central leadership responsibility.
• A need to recognise the varying contribution of Full Members to the value of ICC events through the payment of 'contribution costs'.
• The establishment of an Executive Committee (ExCo) and Financial & Commercial Affairs Committee (F&CA) to provide leadership at an operational level, with five members, including BCCI, CA and ECB representatives. Anybody from within the Board can be elected to Chair the Board and anybody from within ExCo and F&CA can be elected to Chair those Committees. With the ICC undergoing a transitional period that includes a new governance structure and media rights cycle, this leadership will be provided for two years from June 2014 by: a BCCI representative to Chair the ICC Board, a CA representative to Chair the ExCo and an ECB representative to Chair the F&CA.
• A new company will be incorporated to tender future commercial rights for ICC events. There will be three major ICC events in each four-year cycle, including the ICC Champions Trophy which will replace the ICC World Test Championship.
• ICC will utilise a more efficient operating model for all ICC events, with a simplified accounting model across ICC income and expenditure to help better manage ICC administrative and event costs.

ICC President Alan Isaac said: "This is an important time for world cricket and it is extremely encouraging that the ICC Board has unanimously supported a set of far-reaching principles that will underpin the long-term prosperity of the global game.

"These principles emphasise the primacy of Test cricket and that for the first time in cricket's history participation will be based entirely on meritocracy, giving everyone powerful incentives to play better cricket and develop better cricketers.

"There is more work to be done by the Members in developing their schedules of bilateral cricket while at the ICC we need to work through the detail of the manner in which these principles will be implemented.

"Extensive work will now be undertaken in advance of a follow-up Board meeting next month."

Mr Isaac also expressed his disappointment with the misconceptions that had been created as a result of a draft position paper produced by three ICC Members being leaked.

"Several months ago I encouraged BCCI, CA and ECB to enter into a constructive dialogue together to help resolve some of the key commercial and governance issues facing the game. These leading cricket nations have worked tirelessly to produce a document which provided the basis for the past few weeks of extremely constructive discussions.

"It is obviously very disappointing that a draft position paper from these Members was leaked as this prompted a debate that ignored the ongoing negotiations between all Members and led to unwarranted criticism of many of those involved in the process.

"The principles agreed today provide clear evidence that through the course of further discussions over the coming weeks we can be increasingly confident in achieving consensus."

David Richardson, the ICC Chief Executive, added: "An enormous amount of effort has gone into developing a comprehensive set of proposals that include input from all Members.

"The Board has held some very constructive, inclusive, wide-ranging and far-reaching discussions and I am looking forward to bringing to fruition some of the principles that have been proposed and accepted in relation to the cricketing structures of the global game."

What is External Commercial Borrowing?

What is External Commercial Borrowing? Any money that has been borrowed from foreign sources for financing the commercial activities in India are called External Commercial Borrowings. The Government of India permits ECBs as a source of finance for Indian Corporates for expansion of existing capacity as well as for fresh investment. The ECBs are defined as money borrowed from foreign resources including the following: Commercial bank loans Buyers' credit and suppliers' credit Securitised instruments such as Floating Rate Notes and Fixed Rate Bonds etc. Credit from official export credit agencies and commercial borrowings from the private sector window of Multilateral Financial Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc. Objective of ECB Government permits the ECBs as an additional source of financing for expanding the existing capacity as well as for fresh investments. The ECB policy of the Government seeks to emphasize the priority of investing in the infrastructure and core sectors such as Power, telecom, Railways, Roads, Urban infrastructure etc. There is also emphasis on the need of capital for Small and Medium scale enterprises. How ECB is different from FDI? Please note that ECB means any kind of funding other than Equity. If the foreign money is used to finance the Equity Capital, it would be termed as Foreign Direct Investment. The ECB should satisfy the ECB regulations stipulated by the Government or its agencies such as RBI. The Bonds, Credit notes, Asset Backed Securities, Mortgage Backed Securities or anything of that nature are included in ECB. Please note that the following are not included in the ECBs: Any Investment made towards core capital of an organization such as equity shares, convertible preference shares or convertible debentures. We should note here that those instruments which can be converted into equity are called convertible. The convertible instruments are covered under the FDI Policy. Any other direct capital is not allowed in ECB. Routes to Access ECB External Commercial Borrowing in India can be accessed via two routes viz. Automatic Route and Approval Route. General idea is that ECB for investment in industrial sector, infrastructure sector are allowed under Automatic Route. They do not require the approval of the Reserve Bank or the Government of India. For specific sectors such as export and import, the borrower has to take the explicit permission of the government before taking the loan. Benefits to Borrower For corporates, the ECB funding helps in many purposes such as paying to suppliers in other countries etc that may not be available in India. The cost of funds borrowed from external sources at times is cheaper than domestic funds. The borrower can diversify the investor base. It opens the international market for the borrowers. ECBs from internationally recognised sources such as banks, export credit agencies, suppliers of Equipment, foreign collaborators, foreign equity holders, international capital markets etc. Impact & Implications on Economy The Government of India has a controlled policy on ECBs and via its policies, it would like to make companies use the ECB to primarily fund the infrastructure and SME sector of the economy. The benefit for the economy is that the low cost international funds can improve inflow of more money in these sectors. Over the years, Indian companies have increasingly dependent on ECB. Indian companies want to get loans through ECB at lower cost and lower their cost of borrowing. The External commercial borrowings increase the external debt of the country. That is why it has to be matched with growth of foreign exchange reserves in the country so as to maintain solvency. Also increase in ECB is accompanied with increase in currency risk as there will be depreciation in rupee, which will lead to increased burden on the borrower as the value of the rupee depreciates. Thus, increased dependence on ECB is less favourable for borrowing country's view. If ECBs are not controlled , there can be huge debt causing problems for economy. Policy of the Government India's ECB policy seeks to keep an annual cap or ceiling on access to ECB, consistent with prudent debt management. The policy also seeks to give greater priority for projects in the infrastructure and core sectors such as Power, oil Exploration, Telecom, Railways, Roads & Bridges, Ports, Industrial Parks and Urban Infrastructure etc. and the export sector. Allowed companies are free to raise ECB from any internationally recognised source such as banks, export credit agencies; suppliers of equipment, foreign collaborators, foreign equity-holders, international capital markets etc. offers from unrecognised sources will not be entertained. Current Limits The companies in manufacturing and infrastructure sector and having foreign exchange earnings can avail of external commercial borrowing ( ECB) for repayment of outstanding rupee loans towards capital expenditure and/or fresh Rupee capital expenditure under the approval route. The overall ceiling for such ECBs is $10 billion. For infrastructure sector companies, there is an overall ceiling of $ 20 billion. RBI has in September 2012, allowed companies to raise ECB up to a maximum period of 5 years for importing capital goods. Under the new norms, the trade credit should not be for a period of less than 15 months and also not in the nature of short-term roll-over finance.

External Commercial Borrowings March 8, 2013 No comments What is External Commercial Borrowing? Any money that has been borrowed from foreign sources for financing the commercial activities in India are called External Commercial Borrowings. The Government of India permits ECBs as a source of finance for Indian Corporates for expansion of existing capacity as well as for fresh investment. The ECBs are defined as money borrowed from foreign resources including the following: Commercial bank loans Buyers' credit and suppliers' credit Securitised instruments such as Floating Rate Notes and Fixed Rate Bonds etc. Credit from official export credit agencies and commercial borrowings from the private sector window of Multilateral Financial Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc. Objective of ECB Government permits the ECBs as an additional source of financing for expanding the existing capacity as well as for fresh investments. The ECB policy of the Government seeks to emphasize the priority of investing in the infrastructure and core sectors such as Power, telecom, Railways, Roads, Urban infrastructure etc. There is also emphasis on the need of capital for Small and Medium scale enterprises. How ECB is different from FDI? Please note that ECB means any kind of funding other than Equity. If the foreign money is used to finance the Equity Capital, it would be termed as Foreign Direct Investment. The ECB should satisfy the ECB regulations stipulated by the Government or its agencies such as RBI. The Bonds, Credit notes, Asset Backed Securities, Mortgage Backed Securities or anything of that nature are included in ECB. Please note that the following are not included in the ECBs: Any Investment made towards core capital of an organization such as equity shares, convertible preference shares or convertible debentures. We should note here that those instruments which can be converted into equity are called convertible. The convertible instruments are covered under the FDI Policy. Any other direct capital is not allowed in ECB. Routes to Access ECB External Commercial Borrowing in India can be accessed via two routes viz. Automatic Route and Approval Route. General idea is that ECB for investment in industrial sector, infrastructure sector are allowed under Automatic Route. They do not require the approval of the Reserve Bank or the Government of India. For specific sectors such as export and import, the borrower has to take the explicit permission of the government before taking the loan. Benefits to Borrower For corporates, the ECB funding helps in many purposes such as paying to suppliers in other countries etc that may not be available in India. The cost of funds borrowed from external sources at times is cheaper than domestic funds. The borrower can diversify the investor base. It opens the international market for the borrowers. ECBs from internationally recognised sources such as banks, export credit agencies, suppliers of Equipment, foreign collaborators, foreign equity holders, international capital markets etc. Impact & Implications on Economy The Government of India has a controlled policy on ECBs and via its policies, it would like to make companies use the ECB to primarily fund the infrastructure and SME sector of the economy. The benefit for the economy is that the low cost international funds can improve inflow of more money in these sectors. Over the years, Indian companies have increasingly dependent on ECB. Indian companies want to get loans through ECB at lower cost and lower their cost of borrowing. The External commercial borrowings increase the external debt of the country. That is why it has to be matched with growth of foreign exchange reserves in the country so as to maintain solvency. Also increase in ECB is accompanied with increase in currency risk as there will be depreciation in rupee, which will lead to increased burden on the borrower as the value of the rupee depreciates. Thus, increased dependence on ECB is less favourable for borrowing country's view. If ECBs are not controlled , there can be huge debt causing problems for economy. Policy of the Government India's ECB policy seeks to keep an annual cap or ceiling on access to ECB, consistent with prudent debt management. The policy also seeks to give greater priority for projects in the infrastructure and core sectors such as Power, oil Exploration, Telecom, Railways, Roads & Bridges, Ports, Industrial Parks and Urban Infrastructure etc. and the export sector. Allowed companies are free to raise ECB from any internationally recognised source such as banks, export credit agencies; suppliers of equipment, foreign collaborators, foreign equity-holders, international capital markets etc. offers from unrecognised sources will not be entertained. Current Limits The companies in manufacturing and infrastructure sector and having foreign exchange earnings can avail of external commercial borrowing ( ECB) for repayment of outstanding rupee loans towards capital expenditure and/or fresh Rupee capital expenditure under the approval route. The overall ceiling for such ECBs is $10 billion. For infrastructure sector companies, there is an overall ceiling of $ 20 billion. RBI has in September 2012, allowed companies to raise ECB up to a maximum period of 5 years for importing capital goods. Under the new norms, the trade credit should not be for a period of less than 15 months and also not in the nature of short-term roll-over finance.

© 2009-2013 http://www.gktoday.in

External Commercial Borrowings March 8, 2013 No comments What is External Commercial Borrowing? Any money that has been borrowed from foreign sources for financing the commercial activities in India are called External Commercial Borrowings. The Government of India permits ECBs as a source of finance for Indian Corporates for expansion of existing capacity as well as for fresh investment. The ECBs are defined as money borrowed from foreign resources including the following: Commercial bank loans Buyers' credit and suppliers' credit Securitised instruments such as Floating Rate Notes and Fixed Rate Bonds etc. Credit from official export credit agencies and commercial borrowings from the private sector window of Multilateral Financial Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc. Objective of ECB Government permits the ECBs as an additional source of financing for expanding the existing capacity as well as for fresh investments. The ECB policy of the Government seeks to emphasize the priority of investing in the infrastructure and core sectors such as Power, telecom, Railways, Roads, Urban infrastructure etc. There is also emphasis on the need of capital for Small and Medium scale enterprises. How ECB is different from FDI? Please note that ECB means any kind of funding other than Equity. If the foreign money is used to finance the Equity Capital, it would be termed as Foreign Direct Investment. The ECB should satisfy the ECB regulations stipulated by the Government or its agencies such as RBI. The Bonds, Credit notes, Asset Backed Securities, Mortgage Backed Securities or anything of that nature are included in ECB. Please note that the following are not included in the ECBs: Any Investment made towards core capital of an organization such as equity shares, convertible preference shares or convertible debentures. We should note here that those instruments which can be converted into equity are called convertible. The convertible instruments are covered under the FDI Policy. Any other direct capital is not allowed in ECB. Routes to Access ECB External Commercial Borrowing in India can be accessed via two routes viz. Automatic Route and Approval Route. General idea is that ECB for investment in industrial sector, infrastructure sector are allowed under Automatic Route. They do not require the approval of the Reserve Bank or the Government of India. For specific sectors such as export and import, the borrower has to take the explicit permission of the government before taking the loan. Benefits to Borrower For corporates, the ECB funding helps in many purposes such as paying to suppliers in other countries etc that may not be available in India. The cost of funds borrowed from external sources at times is cheaper than domestic funds. The borrower can diversify the investor base. It opens the international market for the borrowers. ECBs from internationally recognised sources such as banks, export credit agencies, suppliers of Equipment, foreign collaborators, foreign equity holders, international capital markets etc. Impact & Implications on Economy The Government of India has a controlled policy on ECBs and via its policies, it would like to make companies use the ECB to primarily fund the infrastructure and SME sector of the economy. The benefit for the economy is that the low cost international funds can improve inflow of more money in these sectors. Over the years, Indian companies have increasingly dependent on ECB. Indian companies want to get loans through ECB at lower cost and lower their cost of borrowing. The External commercial borrowings increase the external debt of the country. That is why it has to be matched with growth of foreign exchange reserves in the country so as to maintain solvency. Also increase in ECB is accompanied with increase in currency risk as there will be depreciation in rupee, which will lead to increased burden on the borrower as the value of the rupee depreciates. Thus, increased dependence on ECB is less favourable for borrowing country's view. If ECBs are not controlled , there can be huge debt causing problems for economy. Policy of the Government India's ECB policy seeks to keep an annual cap or ceiling on access to ECB, consistent with prudent debt management. The policy also seeks to give greater priority for projects in the infrastructure and core sectors such as Power, oil Exploration, Telecom, Railways, Roads & Bridges, Ports, Industrial Parks and Urban Infrastructure etc. and the export sector. Allowed companies are free to raise ECB from any internationally recognised source such as banks, export credit agencies; suppliers of equipment, foreign collaborators, foreign equity-holders, international capital markets etc. offers from unrecognised sources will not be entertained. Current Limits The companies in manufacturing and infrastructure sector and having foreign exchange earnings can avail of external commercial borrowing ( ECB) for repayment of outstanding rupee loans towards capital expenditure and/or fresh Rupee capital expenditure under the approval route. The overall ceiling for such ECBs is $10 billion. For infrastructure sector companies, there is an overall ceiling of $ 20 billion. RBI has in September 2012, allowed companies to raise ECB up to a maximum period of 5 years for importing capital goods. Under the new norms, the trade credit should not be for a period of less than 15 months and also not in the nature of short-term roll-over finance.

© 2009-2013 http://www.gktoday.in

MUTUAL Fund explained Complete Explaination of mutual fund

Mutual funds basics

 

1. What is a mutual fund?

Quite simply, a mutual fund is a mediator that brings together a group of people and invests their money in stocks, bonds and other securities.
Each investor owns shares, which represent a portion of the holdings of the fund. Thus, a mutual fund is one of the most viable investment options for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

2. What are the benefits of investing in a mutual fund?

Investing in a mutual fund offers you a gamut of benefits

Some of them are as below:

• Small investments: With mutual fund investments, your money can be spread in small bits across varied companies. This way you reap the benefits of a diversified portfolio with small investments.
• Professionally managed: The pool of money collected by a mutual fund is managed by professionals who possess considerable expertise, resources and experience. Through analysis of markets and economy, they help pick favourable investment opportunities.
• Spreading risk: A mutual fund usually spreads the money in companies across a wide spectrum of industries. This not only diversifies the risk, but also helps take advantage of the position it holds.
• Transparency and interactivity: Mutual funds clearly present their investment strategy to their investors and regularly provide them with information on the value of their investments. Also, a complete portfolio disclosure of the investments made by various schemes along with the proportion invested in each asset type is provided.
• Liquidity: Closed ended funds can be bought and sold at their market value as they have their units listed at the stock exchange. In addition to this, units can be directly redeemed to the mutual fund as and when they announce the repurchase.
• Choice: A wide variety of schemes allow investors to pick up those which suit their risk / return profile.
• Regulations: All the mutual funds are registered with SEBI. They function within the provisions of strict regulation created to protect the interests of the investor

• Watch & learn

• Why should you invest in mutual funds?

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3. What is an asset management company (AMC)?

An AMC is a company that manages a mutual fund.

For all practical purposes, it is an organized form of a money portfolio manager which has several mutual fund schemes with similar or varied investment objectives. The AMC hires a professional money manager, who buys and sells securities in line with the fund's stated objective.

4. How are mutual funds classified?

Every investor has a different investment objective. Some go for stability and opt for safer securities such as bonds or government securities.

Those who have a higher risk appetite and yearn for higher returns may want to choose risk-bearing securities such as equities. Hence, mutual funds come with different schemes, each with a different investment objective.

There are hundreds of mutual fund schemes to choose from. Hence, they have been categorized as mentioned below.
By structure: Closed-Ended, Open-Ended Funds, Interval funds.
By nature: Equity, Debt, Balance or Hybrid.
By investment objective: Growth Schemes, Income Schemes, Balanced Schemes, Index Funds.

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5. What are the different types of mutual funds?

There are hundreds of mutual fund schemes to choose from. Hence, they have been categorized by structure, nature and investment objective.

Types of mutual funds by structure
Close ended fund/scheme: A close ended fund or scheme has a predetermined maturity period (eg. 5-7 years). The fund is open for subscription during the launch of the scheme for a specified period of time. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices or they are listed in secondary market.
Open ended fund/scheme: The most common type of mutual fund available for investment is an open-ended mutual fund. Investors can choose to invest or transact in these schemes as per their convenience. In an open-ended mutual fund, there is no limit to the number of investors, shares, or overall size of the fund, unless the fund manager decides to close the fund to new investors in order to keep it manageable. The value or share price of an open-ended mutual fund is determined at the market close every day and is called the Net Asset Value (NAV).
Interval schemes: Interval schemes combine the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices. FMPs or Fixed maturity plans are examples of these types of schemes.
Types of mutual funds by nature
Equity mutual funds: These funds invest maximum part of their corpus into equity holdings. The structure of the fund may vary for different schemes and the fund manager’s outlook on different stocks. The Equity funds are sub-classified depending upon their investment objective, as follows:

• Diversified equity funds
• Mid-cap funds
• Small cap funds
• Sector specific funds
• Tax savings funds (ELSS)

Equity investments rank high on the risk-return grid and hence, are ideal for a longer time frame.
Debt mutual funds: These funds invest in debt instruments to ensure low risk and provide a stable income to the investors. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. Debt funds can be further classified as:

• Gilt funds
• Income funds
• MIPs
• Short term plans
• Liquid funds

Balanced funds: They invest in both equities and fixed income securities which are in line with pre-defined investment objective of the scheme. The equity portion provides growth while debt provides stability in returns. This way, investors get to taste the best of both worlds.
Types of mutual funds by investment objective
Growth schemes
Also known as equity schemes, these schemes aim at providing capital appreciation over medium to long term. These schemes normally invest a major portion of their fund in equities and are willing to withstand short-term decline in value for possible future appreciation.
Income schemes
Also known as debt schemes, they generally invest in fixed income securities such as bonds and corporate debentures. These schemes aim at providing regular and steady income to investors. However, capital appreciation in such schemes may be limited.
Index schemes
These schemes attempt to reproduce the performance of a particular index such as the BSE Sensex or the NSE 50. Their portfolios will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weight age. And hence, the returns from such schemes would be more or less equivalent to those of the Index.

• Watch & learn

• 
  Our funds

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6. What does a mutual fund do with my money?

If you have even as little as a few hundred rupees to spare, you can start your investment journey with mutual funds.

Read more

7. How are mutual funds different from portfolio management schemes?

In mutual funds, your money along with many others is pooled to form a common investible corpus. Any profit/loss made during a given period will be the same for all investors. However, if you choose a portfolio management scheme, your individual investment remains identifiable to you. Here, even the profit/loss of all the investors will be different from each other.

8. How is investment in a mutual fund different from a bank deposit?

When you deposit money with the bank, the bank promises to pay you a certain rate of interest for the period you specify.
On the date of maturity, the bank is supposed to return the principal amount and interest to you. Whereas, in a mutual fund, the fund manager invests your money as per the investment strategy specified for the scheme. The profit, if any, minus manager expense, is reflected in the NAV or distributed as income. Similarly, loss, if any, with the expenses, is to be borne by you.

9. Does investing in mutual funds mean investing in equities only?

Mutual Funds, besides equities, can also invest in debt instruments such as bonds, debentures, commercial paper and government securities. Every mutual fund scheme is governed by the investment objectives that specify the class of securities it can invest in.

10. How are mutual funds regulated?

SEBI and/or the RBI (in case the AMC is promoted by a bank) regulates all Asset Management Companies (AMCs).

In addition, every mutual fund has a board of directors that represents the unit holders' interests in the mutual fund.

• 
  For more information visit SEBI website

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11. Why are mutual funds a safe investment option?

Diversification – Investors can spread out and minimize their risk up to a certain extent by purchasing units in a mutual fund instead of buying individual stocks or bonds. By investing in a large number of assets, the shortcomings of any particular investment are minimized by gains in others.

• Economies of scale: Mutual funds buy and sell large amounts of securities at a time. This helps reduce transaction costs and bring down the average cost of the unit for investors.
• Professional management: Mutual funds are managed by thorough professionals. Most investors either don’t have the time or the expertise to manage their own portfolio. Hence, mutual funds are a relatively less expensive way to make and monitor their investments.
• Liquidity: Investors always have the choice to easily liquidate their holdings as and when they want.
• Simplicity: Investing in a mutual fund is considered to be easier as compared to other available instruments in the market. The minimum investment is also extremely small, where an SIP can be initiated at just Rs.50 per month basis.

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12. Why is diversification of funds important?

When it comes to mutual funds, putting all your eggs in a single basket is never a wise option. This is due to the market volatility and the risks that come with it.
But you can always minimise them by distributing your investments among various financial instruments, industries and other categories. Here the intent is to maximise returns by investing in different areas, where each would react differently to the same event. This not only buffers the impact of a market downturn, but also allows for more potential rewards by offering a broader exposure to various stocks and sectors.

13. What is a portfolio ?

A portfolio of a mutual fund scheme is the basket of financial assets it holds. It consists of investments diversified in different securities and asset classes which help reduce the overall risk. A mutual fund scheme states the kind of portfolio it seeks to construct as well as the risks involved under each asset class.

14. What is net asset value (NAV)?

Net Asset Value (NAV) is the actual value of one unit of a given scheme on any given business day.
The NAV reflects the liquidation value of the fund's investments on that particular day after accounting for all expenses. It is calculated by deducting all liabilities (except unit capital) of the fund from the realisable value of all assets and dividing it by number of units outstanding.

15. What is load?

It is the charge collected by a mutual fund from an investor for selling the units or investing in it. Entry load or Front-end load or Sales load is the charge collected at the time of entering into the scheme.
An Exit load or Back-end load or Repurchase load is the charge collected at the time of redeeming or transferring between schemes (switch). There are also schemes that do not charge any load and are called "No Load Schemes".

16. What is sale price?

It is the price paid by an investor when investing in a scheme of a Mutual Fund. This price may include the sales or entry load.

17. What is redemption/repurchase price?

Redemption or Repurchase Price is the price at which an investor sells back the units to the Mutual Fund. This price is NAV related and may include the exit load.

18. What is repurchase or back end load?

It is the charge collected by the scheme when it buys back the units from the unit holders.

19. What is the role of a fund manager?

Fund managers constantly monitor market and economic trends and analyse securities in order to make informed investment decisions.

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20. What are sector funds?

These are funds that invest exclusively in stocks that fall into a certain sector of the economy. This scheme is perfect for investors who have decided to confine their risk and return to one particular sector. Thus, an Infrastructure Fund would invest in companies that manufacture and support companies which deal with construction, raw material production, etc.

21. What is the difference between Growth Plan and Dividend Reinvestment Plan?

Investors obtain capital appreciation on their investments under the Growth Plan. However, under the Dividend Reinvestment Plan, the dividends declared are reinvested automatically in the scheme.

22. What is a switching facility?

Investors have an option of transferring the funds amongst different types of schemes or plans with a switching facility.

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23. What is an account statement?

An account statement is a non-transferable document that serves as a record of transactions between the fund and the investor.

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24. Who is a registrar?

A Registrar is responsible for accepting and processing the unit holders' applications, carrying out communications with them, resolving their grievances and dispatching Account Statements to them.
In addition, the registrar also receives and processes redemption, repurchase and switch requests. The Registrar maintains an updated and accurate register of unit holders of the Fund and other records as required by SEBI Regulations and the laws of India. An investor can get all the above facilities at the Investor Service Centers of the Registrar.

25. What is a Systematic Investment Plan?

SIP is a method of investing a fixed/regular sum every month or every quarter. With the growing everyday expenses, it becomes difficult to accumulate a considerable sum which can be invested at one go.

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26. Why is SIP a great investment option?

The biggest advantage of an SIP is the habit of regular, disciplined savings. Every month, like all other EMIs, this also gets deducted from the bank a/c through electronic clearing service, which is convenient. A SIP does not pinch the pocket much if started at an earlier stage.

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27. What is a systematic withdrawal plan (SWP)?

The unit holder may set up a Systematic Withdrawal Plan on a monthly, quarterly or semi-annual or annual basis to redeem a fixed number of units. The systematic withdrawal plan, besides being popular among investors looking for consistent cash flows from their investments, is helpful for retirees to support their expenses.

28. What is a systematic transfer plan (STP)?

With an STP, you choose a particular amount to be transferred from one mutual fund scheme to another of your choice. You can go for a weekly, monthly or a quarterly transfer plan, depending on your needs.

29. How can STP help you?

If you are looking at gradually exposing yourself to equities or reducing exposure over a period of time, then STPs are a good option.

You than start an STP where every month a pre-determined amount will be invested into an equity fund. This helps in deploying funds at regular intervals in equities with minimum timing risk. This also gives you an opportunity to earn better than saving bank account rate of return.

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30. What does it cost?

Mutual funds have a load structure that affects the transaction cost. While the entry load has been done away with by most mutual funds, there is an exit load applicable.
So when you opt for an STP, there is an exit load to be paid on the scheme from which the funds are transferred. Also, transfer of funds from one scheme to another is treated as sale for the purpose of taxation and you may have to pay the taxes applicable.

31. What are the types of returns one can expect from a Mutual Fund?

Capital Appreciation and Dividend Distribution are the two ways in which mutual funds give returns.
With the increase in the value of individual securities in the fund, its unit price increases and the investor can book a profit by selling these units at a higher price. In Dividend Distribution, the unit holders receive the profit earned by the fund in the form of dividends. Dividend distribution can however be re-invested in the fund or can be paid to the investor.

32. Can the NAV of a debt fund fall?

While the rate of interest on debt instruments stays the same throughout their tenure, their market value keeps changing, depending on how the interest rates in the economy shift.
A debt fund's NAV is the market value of its portfolio holdings at a given point in time. As interest rates change, so do the market value of fixed-income instruments - and hence, the NAV of a debt fund.

33. How do I track the performance of the Fund?

The NAVs are published in financial newspapers and also available on the AMFI website on a daily basis.

34. Does out performance of a benchmark index always connote good performance?

The index performance is volatile and may be driven by a few factors only. So it is better to keep other factors like risk adjusted returns (volatility of returns) and NAV movement in mind while deciding to invest in a fund.

35. Does higher return necessarily mean a better fund?

At one level, high return is equivalent to good fund. However, there might also be some risks involved to achieve these returns. Hence, statistical tools like Beta, Sharpe ratio, Alpha and Standard Deviation to measure this risk is always wise. A risk adjusted return is the best measure to use while judging a scheme. You can also refer to the ratings assigned by a reputed rating agency.

36. What should one keep in mind while choosing a good Mutual Fund?

Income, expenses, commitments, financial goals and many other factors vary from person to person.

So before investing your money in mutual fudns, you need to analyse the following:

• Investment objective: The first step should be to evaluate your financial needs. It can start by defining the investment objectives like regular income, buying a home, finance a wedding, educating your children, or a combination of all these needs. Also your risk appetite and cash flow requirements form an important part of the decision.
• Choose the right Mutual Fund: Once the investment objective is clear, the next step would be choosing the right Mutual Fund scheme. Before choosing a mutual fund the following factors need to be considered:
  • NAV performance in the past track record of performance in terms of returns over the last few years in relation to appropriate yardsticks and other funds in the same category
  • Risk in terms of unpredictability of returns
  • Services offered by the mutual fund and how investor friendly it is
  • Transparency indicated in the quality and frequency of its communications

It is always advisable to diversify your money by investing it in different schemes. This not only cuts down on the risk, but also gives you a chance to benefit from multiple industries and sectors.

• Watch & learn

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  Systematic Dream Planner

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  Funds at a glance

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37. How important are fund costs while choosing a scheme?

The cost of investing through a mutual fund warrants due consideration since management fees, annual expenses of the fund and sales loads can erode a significant portion of your returns. Generally, 1% towards management fees and 0.6% towards other annual expenses is acceptable.
But do check the fee charged by the fund for getting in and out of the fund.

38. How to decide if the New Fund is an appropriate one for you?

You can start by looking into your financial plan or your existing portfolio. You should analyse the kind of funds in your existing portfolio – if they large cap funds, mid cap funds, flexi cap funds, balanced funds, tax planning funds.

• Then evaluate how the new fund adds value to your existing portfolio, fits in with the asset allocation and help you achieve your goals.
• Understand the investment objective, strategy and asset allocation of the new fund.
• You also need to check the fund manager’s track record in managing other schemes. Other schemes managed by this fund manager and how they have performed in the past.
• It would also be recommended to verify the stability of the fund house investment team, the number of schemes managed by them and their track record of launching new funds.

• Watch & learn

• 
  Systematic Dream Planner

• 
  Funds at a glance

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39. Ideally how many different schemes should one invest in?

It is recommended to invest in two to three funds that match and/or complement your investment objective. This is to avoid dependence on any one fund and avert risks of market downturns. You can always split the pie as 60:40 with two funds and 40:30:30 in case of 3 funds.

India tour of New Zealand, 4th ODI: New Zealand v India at Hamilton, Jan 28, 2014

Bacon and potatoes recipe for busy working women

Bacon and potatoes recipe for busy working women

While we are on the subject of bacon (have you read my recipe on Bacon Carbonara), there is a whole lobby out there who wants to make bacon a food category. Back bacon is my favourite, and the earliest recipe using bacon that I know of is quite easy to prepare. It is called Bacon and Potatoes. I suspect there’s a rhyme with the words – ‘bacon and potatoes’.

Bacon and Potatoes was something I regularly made when mummy wasn’t home and therefore there was no meat or fish in the fridge, since they required us to go to a putrid meat or fish monger’s shop. I never took to buying fish till much later in my life and still don’t buy freshly cut meat by myself.
Bacon can be easily bought from a cold storage and back bacon is the best. Nowadays, a lot of supermarkets sell smoked bacon, cured bacon, spiced bacon and other kinds of bacon. But back then, I would buy a quarter kilo of back bacon for non-vegetarian fix food when mum was away.

And the recipe is so simple that even your little one can make it.

Ingredients:

200 gms of back bacon
1 medium-sized tomato
1 medium-sized onion (sliced)
2 medium-sized potatoes (chopped)
½ tsp red chilly powder
½ tsp turmeric powder
½ tsp pepper powder
2 Green chillies (the long ones)

Method:

1. Cut bacon into medium-sized pieces. Remove the rinds of the bacon if you don’t like them. I remove mine because I find them too hard to bite.
2. Sauté the bacon with pepper powder in a little bit of oil (less than 1 tsp), till the oil gets a slight flavour of the bacon. Remove the bacon from the pan into another vessel once it is slightly fried and the fat melts.
3. In this hot pan, add sliced onion and fry till it is translucent. Add the potatoes and sauté them well. Add finely chopped tomatoes to this.
4. Add chilly powder, turmeric powder and green chillies to this mixture and stir well.
5. Now, stir the bacon back with this mixture and allow to cook till the green chillies lose their rawness and the potatoes are done. Stir occasionally.
6. Serve hot with dal and rice or with warm chapattis.

Insurance broking model to be compulsory for banks soon: IRDA

Soon, the Insurance Regulatory and Development Authority (IRDA) may make the broking model for banks compulsory if significant traction is not achieved in Insurance penetration. Data from the IRDA shows that at present, India stands much below the global average of 6.5 % (of GDP) in insurance spread at 3.96 %.

• As per IRDA, the decision with regard to making ‘broker’ model for banks rather than agent model will be taken if agent model does not see considerable traction in the next two to three months.
• The banks are selling insurance products to their customers only. Thus, they must act as brokers to represent multiple insurance and give the best option to the customer rather than seek to sell a particular company’s product(s).
• As an insurance broker, a bank is liable to consumers, with respect to an insurance policy, unlike a corporate agent. The liability could be high as a bank will sell the products of multiple insurers.

Note: On the subject of broking model for banks, in November 2013, the RBI had decided to permit banks to undertake insurance broking business departmentally through draft guidelines. And then in December 2013, the Finance Ministry in a circular asked public sector banks to take up insurance broking by January-end in view of the meager insurance penetration levels in the country, especially in rural areas.